If You’re Not Using Volatility Bands, You’re Playing With Half A Deck
What Tuesday’s Action Tells
You
NYSE volume was just under 1.3
billion, as prices caught an air pocket to the downside. The volume ratio
was 16
and breadth -1073. The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) closed at 965.47, -1.8%. If you
remember from previous commentary, the SPX had four straight trading days
from
July 17 – 22 with alternating closes below and above the 1.0 volatility
band. I
said that doesn’t happen often and usually precedes some more volatility.
The
July 22 close of 988.11 was above the 987.96 1.0 volatility band that day
and
price has since advanced to a 1000.68 high on July 28. Last Friday, Aug. 1,
the
SPX closed at 980.15, below its 1.0 volatility band of 981.11 and hit a
964.97
low yesterday, closing at 965.47, also below yesterday’s 972.98 1.0
volatility
band. I will simply say if you’re not involved in the volatility bands on a
daily basis for both stocks and the major indices, you are playing with half
a
deck and leaving a lot on the table.
The Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) was -1.6% yesterday,
closing at 9036, losing 80 of its -150 points in the last hour as sell
programs
hit the tape with no Generals present on the buy side of any consequence.
When
the programs started, most of the floor brokers on the NYSE were standing
around
their booths with not much to do. The Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) was -2.4%
yesterday
and the
(
QQQ |
Quote |
Chart |
News |
PowerRating) -2.9% and
(
SMH |
Quote |
Chart |
News |
PowerRating) -3.2%, with
(
INTC |
Quote |
Chart |
News |
PowerRating) the only major
semi trading more than its average volume at -3.4% for the day. That’s what
air
pockets are — larger price moves on lighter volume. The major sectors were
all
red, led by the
(
BBH |
Quote |
Chart |
News |
PowerRating), -3.6%.
For Active
Traders
Yesterday’s market action brought the 50-day
EMA
pivots into play. The SPX traded and closed below its 50-day EMA of 976.60.
The
QQQ closed at 30.55, just below the 50-day EMA of 30.59 and in play both
ways
today. The Dow closed at 9036, which IS its 50-day EMA, as did the BBH at
126.70
vs. its 50-day EMA at 126.14. The XBD is another sector at its pivot,
closing at
532.62 vs. the 50-day EMA of 531.54. The BKX had followed the SPX, closing
below
its 50-day EMA of 867 at 857.18. I guess everybody forgot that big earnings
week. The SMHs closed at 31.79 vs. the 20-day EMA at 31.74, with the 50-day
EMA
at 30.39. The SPX magnet is the 962.10 low of July 1.
Today’s
Action
When price is at key moving averages and/or
inflection points, there is always excellent intraday opportunity. Today it
might be the indices opening up this morning (as the pre-market futures are
small green), then re-crossing the 50-day EMA to the downside, setting up
continuation shorts. It might be the SPX taking out the 962.10 magnet, then
reversing that low to the upside. If that move fails, then it might be a
second-entry short below 962.10. There is a confluence around the 960
number.
The SPX is a possible RST because it traded
below
Monday’s 966.79 low, which becomes your “3” point. The major
indices
are all trading in the -2.0 to -3.0 two-day standard deviation zone, so that
makes you alert for a quick intraday reflex which could precede lower lows.
The
point is prepare your day based on where price is relative to any key
inflection
points or pattern setups, and then you can just concentrate on the price
action,
volume and market dynamics when deciding to take a trade. If the expected
SPX
cycle down into early to mid-August continues below 962, the 200-day EMA,
now at
940, should certainly see some activity.
The ideal price action for daytraders today
would
be a sharp early down during the first hour, setting up a good contra move,
and
then we will find out if any of the Generals show up and get aggressive on
the
sell side.
Have a good trading day,
Kevin Haggerty
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